A century after being popularized by the American conman Charles Ponzi - who gave it his name - and fifteen years after the financier Bernard Madoff made it famous, the
"
Ponzi pyramid
"
scam still has fans .
And victims... The latest scandal is causing a stir in the small financial world of the City of London.
On Monday, the trial of the investment company London Capital & Finance (LCF), which closed its doors in 2019, opened across the Channel. It is accused of having cheated 11,600 investors, mainly retirees or disabled people, who would have lost a total of 237 million pounds (277 million euros) in this affair.
London Capital & Finance was
“a Ponzi scheme from the beginning
,” as the company used
“money from new investors to pay existing investors
,” a lawyer for the plaintiffs argued.
This mechanism being specific to a Ponzi pyramid, a financial arrangement which, for example, allowed Bernard Madoff to amass up to 65 billion dollars (60 billion euros), before the pot aux roses was discovered in 2008.
London Capital & Finance attracted investors thanks to promised unbeatable returns of up to 8%, thanks to a very specific type of bond called
“
mini-bonds
”
.
But to guarantee these rates and pay the interest owed to bond holders, LCF is accused of having dipped into the accounts of other clients.
Because if the company claimed to use the funds raised to finance small and medium-sized businesses, in reality the company's goal would have been quite different: the investors' savings would have been diverted for the benefit of a handful of people linked to LCF, including its leaders.
The victims included
“retirees who had invested all their savings”
as well as
“disabled and incapacitated people with no prospect of ever earning an income again
,” the court said, cited by the
Financial Times
.
Also read: Wirecard: the incredible scandal that is shaking German finance
Still partial compensation
The embezzled amounts would have enabled the supposed instigators of the fraud to afford luxury goods.
The former general director of the company, Michael Thomson, who disputes the facts, for example acquired a country house, two racing horses, two luxury watches (Rolex and Patek Philippe) and even four hunting rifles.
Other LCF administrators would have spent the money received on gold bars, trips, huge properties, land in the Caribbean, bronze statues, luxury cars (Porsche, Rolls-Royce) , quad bikes or even donations to the British Conservative Party.
The house of cards finally collapsed in 2019, triggering criminal and regulatory investigations, as well as an investigation by the Financial Conduct Authority, the regulator of the British financial sector.
Since then, injured parties have been able to obtain 58 million pounds from the public compensation fund of the Financial Services Compensation Scheme, to which have been added 114 million pounds matched by the British Treasury.
“But these bailout funds only represent up to 80% of victims' losses, up to a maximum of £68,000
,” reports
The Times
.
The victims are therefore counting on the ongoing trial to obtain additional compensation.
The trial is expected to last twenty weeks, or five months, according to the British press.
A duration commensurate with the affair, which the
Financial Times
describes
as “one of the biggest scandals linked to personal savings in the United Kingdom in recent years”
.